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Representing the voice of little people.

Thursday, March 7, 2013

Fourteen Arrested for Market Manipulation Schemes That Caused Thousands of Investors to Lose More Than $30 Million

LOS ANGELES—Federal authorities have arrested 14 people
named in two federal indictments that allege long-term schemes to
manipulate stock prices that led to more than 20,000 investors losing
over $30 million when artificially inflated stock prices collapsed. As
one defendant described his scheme during a wiretapped phone call: “What
I do is turn stock into money.”
The arrests were made yesterday after two grand jury indictments were
unsealed Wednesday. The indictments detail two separate, large-scale
fraud schemes in which conspirators gained control of the majority of
the stock of publicly traded companies, often co-opting company
management to assist in these efforts; concealed their control of the
stock by purchasing and transferring shares to offshore accounts and to
nominee entities with names such as “Dojo,” “Picasso,” and “Big Dog”;
fraudulently inflated the prices and trading volumes of the companies’
stocks through slick marketing campaigns, misleading press releases,
payments to stock promoters, and “cross-trading” among co-conspirators
that made it appear the stocks were being actively traded; coordinated
the sale of the companies’ shares at the peak of the fraudulently
manipulated market; and hid profits in nominee and offshore accounts.
According to court documents, the defendants are serial market
manipulators who carried out several fraudulent deals each year, each of
which generated several million dollars. The defendants generally
targeted marginal companies operating in areas they believed could
easily be touted as generating breakthroughs or deals that would explain
sudden increases in trading volume and price, including companies
purportedly involved in pharmaceuticals, hair restoration, green
technologies, entertainment, oil and gas development, and e-commerce
websites. The indictments allege that increased trading volume and
higher stock prices were actually the result of the defendants’
fraudulent actions. A company CEO brought into one of the schemes summed
up a typical deal during a wiretapped call: “There’s nothing in there,
there’s nothing to the company. It’s monkey business.”
The indictments allege that the schemes collectively engaged in five
specific deals that defrauded more than 20,000 investors around the
world and generated more than $30 million in illegal profits.
“This case has dismantled a far-reaching stock market manipulation
scheme run with ruthless efficiency and operated with one goal in
mind—to steal money from the investing public,” said U.S. Attorney André
Birotte Jr. “This type of predatory behavior cheats the average
investor, erodes overall confidence in the markets, and has a
devastating impact on companies and their employees.”
One indictment alleges a scheme led by Sherman Mazur and his nephew,
Ari Kaplan, charging that they “perpetrated a multi-million-dollar
scheme to fraudulently inflate the prices and trading volumes of public
company stocks and then sell millions of shares of those companies at
the fraudulently inflated prices to the investing public for substantial
profits.” The indictment alleges that the scheme involved a number of
companies, but focuses on deals involving two businesses—GenMed, which
purported to develop, manufacture, and distribute generic
pharmaceuticals; and Biostem, which purported to develop and license
regenerative stem cell treatments, including hair regrowth technology.
The 32-count Mazur indictment charges nine defendants, all of whom
were taken into custody yesterday morning. They are Sherman Mazur, 63,
of the Westwood district of Los Angeles, who controlled a company called
the London Finance Group, Ltd.; Ari Kaplan, 40 of Venice, who is
Mazur’s nephew and was his partner in the London Finance Group, as well
as in a series of other business endeavors; Grover Henry Colin Nix IV
(who generally used the name “Colin Nix”), 39, of the Los Feliz district
of Los Angeles, who controlled the Santa Monica-based Calbridge Capital
LLC, which purported to be a “boutique investment banking firm”; Regis
Possino, 65, of the Pacific Palisades district of Los Angeles, a
now-disbarred attorney who was Nix’s partner at Calbridge Capital; Edon
Moyal, 32, of Carlsbad, California, who controlled a company called 8
Sounds, Inc. and while allegedly involved in this scheme was free on
bond pending trial in a criminal case filed in federal court in San
Diego; Mark Harris, 56, of Scottsdale, Arizona, a stock promoter who
controlled Apache Capital LLC, an investor relations firm in Scottsdale;
Joey Davis, 46, of the Los Feliz district of Los Angeles, who
controlled Scripted Consulting Group, a public relations firm in Los
Angeles and who was allegedly involved in this scheme while free on bond
pending trial in a criminal case filed in federal court in Los Angeles;
Curtis Platt, who turned 51 today, of Sarasota, Florida, who controlled
Big Dog International LLC; and Dwight Brunoehler, 62, of Maitland,
Florida, who is the CEO of Biostem, a company based in Clearwater, Fla.
The Mazur indictment alleges that the nine defendants conspired to
commit securities fraud and wire fraud. The indictment alleges that
members of the scheme generated at least $13 million in illegal proceeds
when they sold their shares of manipulated companies, a figure that
includes at least $2.1 million in illegal proceeds from the manipulation
campaign for Genmed, as well as $500,000 in illegal proceeds from the
ongoing manipulation campaign for Biostem. The indictment further
alleges that Mazur, Kaplan, Nix, Possino, and Harris engaged in money
laundering, using funds transferred from offshore accounts to promote
their fraudulent scheme.
“The defendants’ alleged combination of celebrities, press releases,
gimmicks, and lies was similar to a how a magician deceives unsuspecting
believers into an illusion,” said Bill Lewis, Assistant Director in
Charge of the FBI’s Los Angeles Field Office. “While operating the
schemes alleged in the indictments, the defendants kept their audience
captive until stock prices peaked, while investor money vanished into
defendants bank accounts.”
The second indictment concerns a stock manipulation ring allegedly
headed by Possino—a former Los Angeles County deputy district
attorney—and Nix, both of whom are also key players in the Mazur
indictment. This second indictment also outlines a broad scheme to
manipulate stock prices and it focuses on deals involving three
companies—Sport Endurance Inc., which purported to develop, manufacture,
and distribute energy drinks and nutritional supplements; Imobolis,
Inc., which came to be known as FrogAds and which purported to operate
an online bulletin board for classified advertisements; and Empire Post
Media, which purported to provide media services, including
post-production services, for feature films and television programs.
This 37-count indictment charges 11 defendants, some of whom are also
charged in the Mazur indictment. Those named in the second indictment
are: Regis Possino, who along with Nix, controlled a series of companies
used in relation to the stock manipulation scheme; Grover Henry Colin
Nix IV, who was generally known as Colin Nix; Tarun Mendiratta, 42, of
Weston, Conn., who claimed to have earned between $75 million and $80
from market manipulation schemes over the past decade and who allegedly
participated in the current scheme, in part, by using a cell phone
smuggled into the prison where he was housed; Ivano Angelastri, 49, a
resident of Switzerland and Dubai, who controlled funds and securities
in foreign accounts for himself and Mendiratta (Angelastri is the one
defendants who was not arrested yesterday; he is currently being sought
by authorities); Mark Harris, the Arizona-based stock promoter; Edon
Moyal; the San Diego County man; Joseph Scarpello, 52, of Tustin,
California, a disbarred attorney who controlled Taylor Financial, Ltd.;
Julian Spitari, 47, of Encino, California, who was the CEO of the
company that came to be called FrogAds; Peter Dunn, 72, of the Brentwood
district of Los Angeles, who was the CEO of Empire Post Media; William
Mackey, 61, a stock promoter who resides in Plantation, Florida, who
allegedly was free on bond in a federal case filed in New York City when
he committed the crimes alleged in this indictment; and Joseph Davis,
the PR executive.
The Possino indictment alleges that members of the conspiracy made at
least $18 million in illegal proceeds from selling their shares of
manipulated companies. This figure includes at least $1 million in
profits from the Sport Endurance campaign, at least $6.8 million from
the FrogAds deal and at least $1 million in profits from the Empire Post
Media deal. The defendants named in this indictment are charged with
conspiracy to commit securities fraud and wire fraud. Possino, Nix,
Mendiratta, Angelastri, Harris, Moyal, Scarpello, and Spitari are also
charged with money laundering related to funds transferred from offshore
accounts.
“This investigation took law enforcement above and beyond its
traditional role in financial crimes,” said N. Dawn Mertz, Special Agent
in Charge of Internal Revenue Service (IRS)-Criminal Investigation’s
Los Angeles Field Office. “Using foreign bank accounts to promote their
scheme, the case put us square in the middle of the world of
international banking and the sophisticated electronic movement of
money. IRS Criminal Investigation is proud to bring our accounting
skills to this joint venture and to put a stop to this and other types
of white-collar fraud.”
While the two indictments outline conspiracies to engage in
wide-ranging market manipulation, each focuses on a small number of
deals that illustrate the overall schemes. One deal concerns the alleged
manipulation of FrogAds stock. After buying up all of the company’s
stock just over a year ago, members of the conspiracy arranged for
FrogAds to issue a series of press releases touting the company’s
successes and growth potential, which included making bogus claims that
the FrogAds website was among the most visited on the Internet. At the
same time, several online stock pickers and at least one analyst
recommended FrogAds after being paid by some of the defendants. After
the company held a press conference with a well known actress (who was
not part of the conspiracy) announcing that she would serve as FrogAds’
celebrity spokeswoman and while members of the conspiracy cross-traded
stock to give the false appearance of increased market demand, the price
for FrogAds stock went up. But the purported success of FrogAds and the
apparent interest in the company’s stock were an elaborate fabrication.
The indictment quotes one member of the conspiracy saying in a recorded
phone call: “You’re dressing this thing up as a multi-million dollar
deal, you gotta make sure that we have all our ducks in order.” The
manipulation of FrogAds’ stock allegedly orchestrated by the conspiracy
resulted in profits of nearly $7 million for the defendants.
The defendants arrested yesterday morning—all of the charged
defendants except Angelastri—made their initial appearances in federal
courts in the districts where they were arrested. Mazur and Possino,
both of whom entered not guilty pleas to the charges in their
indictments, are currently being held without bond, but they are
scheduled to have detention hearings next week in U.S. District Court.
Trial dates for both cases were scheduled for April 9 in federal court
in Los Angeles.
An indictment contains allegations that a defendant has committed a
crime. Every defendant is presumed innocent until and unless proven
guilty.
If convicted, each of the defendants would face statutory maximum
penalties of at least 100 years in federal prison. Some of the
defendants, including Mazur, Possino, Nix, and Mendiratta face potential
life sentences.
Yesterday’s arrests were made under two indictments unsealed today
that are the result of ongoing investigations being conducted by the FBI
and IRS-Criminal Investigation. The investigation involved a series of
wiretaps that resulted in the interception of more than 60,000 phone
calls and 24,000 text messages.